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How Sweet Is It?

What’s being purchased in every case, including the sale of DailyCandy, is not a successful business with a successful product (say, Netflix or Amazon), but a neatly prepackaged audience for hawking the purchaser’s product. The absorbed company’s primary role is to deliver a demographic—carefully, without spooking the herd—and, perhaps, tiptoe away. In a time when TiVo and YouTube allow more and more viewers to skip the commercials, it may very well be a better use of advertising dollars to simply buy an audience.

This line of thinking can still seem absurd. Professor Eben Moglen of Columbia, an eminence in the field of Internet law, told me that he saw the sale of DailyCandy to a larger entity as “a straight media-
property acquisition, based on the advertising revenue, which is measurable. No one values [DailyCandy] either more or less because of the wealth or acquisitiveness of the subscriber base, but simply on the basis of what it produces in ad sales.”

DailyCandy’s subscriber list can
be taken as the Holy Grail of e-commerce:
a million trendy female shoppers,
begging to be spammed.

But is that really the case? Was Murdoch really salivating over MySpace’s awesome ad revenues when he bought it, or was News Corp. more interested in pocketing a dynamic network of 65 million interconnected users (DirecTV, for comparison, has 15 million) and then figuring out how to sell them Fox content?

It’s nearly impossible to apply the usual valuation formulas to DailyCandy. According to the Wall Street Journal, the company projects revenue of “somewhere less than $20 million” this year. Most successful businesses go on sale valued at least ten times their yearly revenue, so by this standard, DailyCandy should cost $200 million or more. About.com, for instance, was generating about $40 million a year when it went to the Times for more than ten times that. It is similarly unclear why DailyCandy’s margin is 60 percent of revenue, according to the Journal, and not, say, 80. There are no trophy offices, no printing expenses, just a handful of salaries. Creative penny-pinching has long been something of a selling point for Dany Levy (the actual candy that comes with the company media kit is a decidedly budget-looking handful of Jolly Ranchers). “One reason we survived the dot-com crash,” she says, “is that we never took venture money and focused on the product instead.”

Of course, Pittman could simply have been testing the market waters with the Journal article, throwing out the equivalent of eBay’s “Buy It Now!” price to see if it sticks. That was the view of a high-ranking executive who briefly explored the possibility of purchasing DailyCandy. He told me that the hard numbers in the company’s abstract diverged somewhat from the picture painted in the Journal. Although DailyCandy has a “legitimately high profit margin,” he says, the report estimated $9 million in revenue in 2005 and was, rather optimistically, in his opinion, projecting $18 million for 2006.

The would-be buyer also notes a major difference between DailyCandy and the likes of iVillage: a conspicuous lack of any tangible community. DailyCandy is not quite a Website—it doesn’t have page views; most customers visit the site DailyCandy.com only once—to subscribe. Oddly, it doesn’t even bother to provide any forum where people could, say, chat about its latest recommendations or offer their own. The savvy friend will talk your ear off, but you won’t get a word in edgewise: Feedback opportunities are limited to an uninviting “contact us” form. As a result, all discussion of DailyCandy has traveled over to other Web communities; this has already freaked out some suitors. Its one-sidedness makes DailyCandy “the odd duck among all these other animals,” says the potential buyer. “I do think it has value, but the lack of page views makes it hard to monetize even by Web standards.”

In other words, nobody knows how to price the company, whose central asset is a sexy mailing list. The rotund neatness of the floated $100 million price tag may be interpreted as “your guess is as good as ours.” (A source inside the company insisted it was worth much more.) The bare functional core of any major Website—the programming, the design, and the bandwidth—can be yours for about $20,000. The rest of the value is locked in with the unquantifiables—the buzz, the virality, the self-perpetuating magic: Why did teens abandon Friendster to colonize MySpace? Where’s the guarantee they won’t decamp en masse and migrate to TagWorld next?

Unquantifiable magic is what DailyCandy specializes in. Viewed together with its too-good-to-be-true content model—tips on selective consumption!—the list becomes nothing less than the Holy Grail of e-commerce: a million trendy female shoppers begging to be spammed. Even with the questionable price, the likely buyers were numerous. Condé Nast, for instance, a natural partner with a surprisingly low-profile Web presence, has been circling Levy’s ship for years. The reason behind putting DailyCandy on the block with such a bang may have been to deliver a “hurry up and marry me already” message to 4 Times Square, especially if another lifestyle-media giant was showing interest.